Pricing Methods and Economy

Since the competition in every economy is higher in the present world, the pricing plays an important role. The major factor which plays an important role in pricing is the sales revenue of each firm. The reasonable prices attract more customers and high prices repel the customers. The fate of an organization is highly dependent on the pricings strategies applied. The pricing also has effects on the economy. Each economic theories of pricing are made on the basis of fundamental economic assumption of profit maximization.

In the present scenario, the other concerns are sales maximization, achieving a target returns on investment, ensuring a certain market share etc… The perfect competition is the main effect of pricing in economy. The characteristics of perfect competition are briefly explained here. The existence of large number of buyers and sellers is the first feature. The total supply of products in a particular industry will have legible impact from the output of a single firm. Likewise, the demand and expectation of a single buyer also has no control over the price of a product. Since there are many identical products which satisfy the need of a buyer the substitution increases. This fuels the increase of producers in an economy.

There are many factors of production like raw materials, labor etc. each firm should take proper care to adjust the production with the demand. When demand exceeds supply additional factors of production should move into the industry and when supply exceeds demand, excess factors of production should move out of the industry. Perfect competition is a market condition which assumes that the factors of production are freely movable into and out of the industry depending upon the demand and supply conditions. This has a great influence on the economic conditions like distribution of resources to different segments and groups.